Peugeot/GM: long road ahead

Financial Times

All things being equal, one plus one makes two. So putting the overcapacity problems at PSA Peugeot Citroën – primarily in its European small car plants – together with those at Opel, General Motors’ European subsidiary, was never, in itself, going to be much of an advance. The test would have been finding an operational strategy to address the common problem of falling prices and volumes.

But on Wednesday, the two parent companies – unveiling a much-leaked global alliance – downplayed this element of their proposed partnership; sorting out capacity will be tackled unilaterally. Instead, the alliance is being touted for its synergy benefits in terms of procurement, components, logistics, and ultimately joint platforms. Investors have, at least, been given a few numbers to consider. With a combined annual purchasing budget of $125bn, GM and Peugeot expect to achieve about $2bn in total annual synergies within five years (split roughly equally between the companies). Towards the end of that period – 2016 – they would hope to launch the first vehicle on a common platform. Unfortunately, the bulk of those benefits will be delivered only after 2013.

All of which is eerily reminiscent of the failed Fiat/GM alliance a decade ago (which ultimately fell apart over ownership issues). Investors – who are being asked to stump up for a €1bn rights issue, supported by the Peugeot family and through which GM will acquire a 7 per cent stake in the French company – may rightly feel underwhelmed. On a charitable interpretation, the deal might be seen as the first baby steps towards addressing the capacity issue. But when small car production lines are running at three-quarters of capacity on a two-shift basis, this problem will hardly wait. And the deal risks being a dangerous distraction.